The Pound slumped back towards the 1.60 level against the U.S Dollar and this is proving to be a good area of support in the market. It seems that a move lower is becoming increasingly likely with a low of 1.5980 triggering a number of stop loss orders clustered around this level. The UK currency has also retreated back towards 1.2000 versus the Euro, after a day of consolidation, and a break of this pivotal support level is likely to trigger further losses.

There were further underlying concerns surrounding the economic outlook in the UK and there is a fundamental lack of confidence in consumer spending. This has been emphasized with the number of significantly retailers going into administration this month. Blockbusters and HMV are the latest this week to call in the administrators with up to 10,000 jobs at risk, which will also raise concerns over the unemployment situation in the UK.

The bleak outlook for the UK economy has led to speculation of the first triple dip since the 1950, while speculation persists that credit rating agencies will downgrade the economy from its AAA status. The latest retail sales figures will be watched very closely on Friday with the risk of an erratic release on seasonal grounds. The key month of sales is expected to post a modest 0.2% increase in store sales for December.

Political consideration have also come to the fore with a sense of unease ahead of the Prime Minister’s speech on Europe on Friday with longer-term unease surrounding the potential for a referendum asking whether the UK should leave the European Union. The Pound is drowning at the moment, falling back towards 1.51 against the Australian Dollar and 1.90 versus the New Zealand Dollar.

The Euro initially found support close to 1.3280 against the U.S Dollar and moved steadily higher towards the close of the European trading session last night. Markets are currently on high alert for exchange-rate comments following the Eurogroup Head Jean-Claude Juncker’s stark warning of a dangerously high Euro. ECB governing council member Nowotny stated that there was no cause for concern surrounding the Euro, however, and said that he didn’t expect to see a long-term rise in the Euro against the Dollar.

It seems the Central Bank are reluctant to get involved in exchange rates and will not get into the business of manipulating the rate. Ongoing concerns surrounding the outlook for growth in the Euro-zone hampered support for the Euro to a degree and there was also a modest increase in peripheral bond yields, which raised awareness that the debt crisis is far from resolved. In the U.S, the latest inflation data was marginally lower-than-expected with a headline decline in prices of -0.1%, which will give the Federal Reserve scope to maintain an ultra loose monetary policy. The industrial and housing data were pretty close to market expectations and did not have a major impact on prices.

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